Basques softened by hopes of freedom in Europe: Nationalists in Bilbao are making a dramatic change in the tactics of their campaign to break away from Spain. Their veteran leader tells Phil Davison why this is so

THERE is a new wind of realism blowing across the Spanish Basque country. It is not that the Basques have given up their dream of independence, far from it, but the confrontational line has become largely passe. Independence is being put on the back burner to concentrate on the immediate problems of economic crisis, unemployment and the decline of the region's traditional steel and ship- building industries.

The bloody nature of the break-up of the former Yugoslavia appears to have increased the feeling of moderation and caution. Moderate Basque nationalist leaders are increasingly betting on a new Europe to solve the independence question, predicting that their region will achieve autonomous status within the European Community, equal to that of current members, within 10 or 15 years.

'I don't believe in a Basque state any more than I believe in a Spanish state,' the longtime nationalist leader Xabier Arzalluz told the Independent. 'I wouldn't tolerate a war to create a Basque state. Our challenge is to haul ourselves up to the productive level of Europe. That's why we don't have time for independence struggles right now. Now it's a bit of a case of 'every man for himself'.'

Mr Arzalluz heads the moderate Partido Nacional Vasco (Basque Nationalist Party, PNV), the strongest single force in local politics, although, after a split within its ranks, it now has to rule in coalition with the Socialists. Despite the fact that there is a regional lehendakari (prime minister) for the Basque country, also from the PNV, Mr Arzalluz, 59, is considered the de facto leader of the nationalists and the region's most influential figure. Along with smaller parties, including Herri Batasuna, the political wing of the separatist group Eta, the nationalists generally win around two-thirds of local votes. The 30 per cent or so of non-Basque immigrants from the rest of Spain tend to vote for the Socialists.

Mr Arzalluz surprised many Spaniards and has made headlines by announcing that the Basque country would not seek independence within the next Spanish legislature, or the next four years following the 6 June general elections. To do so could 'lead to war', he added cryptically. It was a message aimed partly at moderate voters here, partly at the national leaders with whom he may have to co-operate after election day. The six or seven national seats the party expects to win could prove crucial in a hung parliament.

'We are seeking independence, but first we have to know whether a majority of Basques want it,' he said. 'They (the central government) won't let us have a referendum. Constitutionally, a referendum falls within the authority of the Spanish head of government. We know they wouldn't allow us to have one. The constitution points to the Spanish army as the guarantor of the unity of the state.'

Comparing the potential role of the Spanish army with that of the Serbs as Yugoslavia broke up, Mr Arzalluz said: 'That means if we got to the point where we Basques said we wanted to create our own state, inside or outside Europe, as things stand, the army is constitutionally obliged to intervene. Imagine we got to that point and the army came. Well, we wouldn't sit back with our arms folded.'

Mr Arzalluz, a former Jesuit priest, rules - 'I'm not the power, but I am the authority' - from a daringly designed modern building in Bilbao known officially as the Sabin Etxea (The House of Sabino - founder of the party and the nationalist movement almost 100 years ago), but unofficially known to Basque nationalists as 'our historic revenge'. It is built on the site of the original home of Sabino Arana, which was systematically destroyed by another group calling themselves 'nationalists' - those of General Francisco Franco - after the Civil War.

To spite the Basques, Franco ordered the old house taken apart stone by stone, with the stones taken through the streets on lorries, then on to boats to be dumped at sea. A local Basque managed to steal a wrought- iron 19th-century balcony, which has been incorporated into the newly opened building.

Mr Arzalluz said the key to Basque independence lay in a restructured Europe, with a European constitution overriding the Spanish one that regulates the Basque Country's status.